Growth was based on increased
consumption rather than on any industrial breakthrough with the country in the
grip of political turmoil and economic uncertainties, the stock market has acted
as a true indicator of the events taking place all around. A fall of 36 percent
during a short period of four months is what we should really expect in return
of what we have been doing. A political change at the cost of a derailed economy
and a crumbling social order is an achievement only insane nations can be proud
of.

The Auto sector, like other sectors,
recorded sizeable value diminution. The Assembler segment dropped in line with
the KSE-100 index, whereas the Parts & Accessories segment overstepped the
KSE-100 index fall level. When compared with the two other major sectors namely
Financial and Oil/Energy sectors, the Auto sector ended up as a better performer
than the Financial sector which recorded a fall of 44.64 per cent, and as a
worse performer than the Oil/Energy sector which recorded a drop of 26.82 per
cent.

TABLE - AUTO SECTOR COMPARED WITH OTHER SECTORS
ON STOCK EXCHANGE

Rs. In Million

KSE 100

AUTO ASSEMBLERS

AUTO PARTS & ACCSR.

FINANCIAL SECTOR

OIL/ENERGY SECTOR

DATE

INDEX

MKT. CAPITALIZATION

MKT. CAPITALIZATION

MKT. CAPITALIZATION

MKT. CAPITALIZATION

15-Apr-08

15,538

86,228

8,054

2,061,004

1,272,987

13-Aug-08

9,902

55,294

4,843

1,141,017

931,539

Decrease

5,636

30,934

3,211

919,987

341,448

%Decrease

36.27

35.87

39.87

44.64

26.82

The comparison shows that the auto
sector is not very speculative from stock market perspective. But also it is not
as resistant as the oil and energy sector. The recently experienced slump in the
car business may further depress the stock values of companies predominantly
engaged in the business of car manufacturing. Our auto industry has no export
potential. The high production cost, the lack of modern technology and local
manufacturing facilities, the tariff structure for imported units and
manufacturers' greed for higher profits render the indigenous production
suitable for sale only in the domestic market. That is why the demand and sales
pattern of local market remains the sole determinant of auto stock prices.

With an average GDP growth of 7 per
cent during the last five years when consumption and investment levels recorded
unprecedented rise, the automobile industry of Pakistan got a boost in
collaboration with the financial sector which took care of people's financing
need through consumer and lease financing. We were producing around 30,000 units
of cars till 1995. These numbers ballooned to 160,000 by the mid of 2007. With
Rs.100 billion investment in the car manufacturing during the boom period
2003-2006, the auto makers earned huge profits by expanding capacities in the
wake of rising demand triggered by easily available consumer finance. It is
prophesied that the auto making industry still has many milestones to reach and
plans are put on anvil to invest further Rs.225 billion in the industry to roll
out 500,000 units by 2010-11.

These hurriedly thought-out plans
failed to factor in economic and social fallouts of an uncontrolled auto market
growth based on increased consumption rather than any industrial breakthrough.
The lavish auto finance put the financing institutions in a sorry pickle when
mounting defaults started to raise their ugly heads. With around 500,000 units
produced and sold during the last three years, the country's major cities have
changed into urban slums. The overcrowded roads, frequent traffic jams, lack of
parking space and growing number of road accidents are some of bitter fruits of
unplanned lop-sided growth of auto industry particularly car manufacturing
sub-sector. Lop-sided because the production of tractors trucks and buses has
not registered the same level of growth as the car manufacturing has.
Manufacturing and sale of tractors is indicative of well being of agriculture
sector and the progress of transport and logistics is measured by the increase
in manufactured and sold units of trucks and buses.

HAPPENING OF THE INEVITABLE

The inevitable has happened. The
political uncertainties, the high auto finance default ratio, the sky rocketing
oil and CNG prices, the enhanced duty and tax rates for auto buyers, the influx
of used imported cars and the fast shrinking disposable incomes have brought
about the threatening slowdown in the local car business. The FY08 has recorded
an eleven per cent drop in car sales, whereas the month of July alone has
recorded a drop of 55 per cent vis-‡-vis the month of June-08. Perhaps this is
high time we take stock of the situation. We will do well to rethink and
rationalize our auto policy. Having great potential auto industry needs to be
developed in line with our economic priorities.

The focus needs to be shifted from car
manufacturing to tractor, trucks and bus manufacturing. The motorcycle
manufacturing is constantly picking up and will continue to do so. A motorcycle
is the most cost effective mode of transport devoid of any semblance of luxury.
This segment should be allowed to grow at its own pace. We can not achieve a
major breakthrough in agriculture without the help of modern farm technology.
Tractors and allied farm vehicles are major components of modern farming
systems. The industry must focus on the production of low-HP tractors that can
be leased out to small farmers with the intermediation of banks. The production
of trucks and buses also needs to be jacked up to solve problems of logistics
and public transport. The banks and financial institutions have overly indulged
themselves in the economics of consumption through personal and car loans. They
must now involve themselves in the more promising economics of agriculture and
industry by diverting their resources to the financing of agriculture, logistics
and public transport vehicles. This will ensure a sustainable growth for both
auto and financial sectors besides doing a lot of good for the overall economy.

We require at least 4 to 5 million tons
of steel to meet the target set for coming years. Our present capacity is only
one million ton. The prices of imported steel have gone and are still going up.
We will have to use our raw material options very judiciously by producing an
optimal mix of auto units. On technology front too, we lag far behind. We have
gone through a number of deletion programs without achieving much. We now need
to attract local and foreign investment towards capital formation. A broadened
industrial base capable of delivering goods of industrial value is the only
answer to all economic dilemmas, auto industry being no exception.